The Employment Effect of Terminating Disability Benefits

While time out of work normally decreases subsequent employment, Social Security Disability Insurance (DI) may improve the health of disabled individuals and increase their ability to work. In this paper, I examine the employment of individuals who lost DI eligibility after the 1996 removal of drug and alcohol addictions as qualifying conditions. Approximately one-fifth started earning at levels that would have disqualified them for DI, an employment response that is large relative to their work histories. This response is largest for those who had received DI for 2.5-3 years, when it is 50% larger than for those who had received DI for less than one year and 30% larger than for those who had received DI for six years. A similar relationship between time on DI and the employment response is found among those whose primary disability was an addiction, mental disorder, or musculoskeletal condition, but not those with chronic conditions like heart or liver disease. The results suggest that a period of public assistance can maximize the employment of some disabled individuals.